Going into October of this year, Bitcoin traders were walking around with a mild spring in their step. For one thing, the crypto sector’s Q3 was good compared with other asset classes. Looking at Bitcoin prices, they only lost 4% in the month of September, compared with losses of 15% in August. For another thing, October is a month that has seen Bitcoin rise by an average of 25%, and gains of 1.3% were recorded as the month got going. One reason for September’s improvement may have been the decreasing influence of “the cohort of retail-type investors who had fuelled much of last year’s huge surge in prices”, suggested Bloomberg.
Homing in on the final week of September, however, we see Bitcoin prices slipped by 3.7%, and Ether by 4.7%, when the US Federal Reserve made it clear they were going to remain in a hawkish mood after hiking rates by 75 basis points for the third consecutive time. Parallel to all this, the S&P 500 lost 2%. “I would assume it’s a reflection of general bearishness rather than something specific to Bitcoin”, suggested Katie Stockton of Fairlead Strategies, referring to the correlation between Bitcoin price movements and other equities. Thus, it was that before October, we were reminded of crypto’s equity-like sensitivity to tight monetary conditions.
And, indeed, the rally at the start of October ended after only two days, when data came out showing strong US economic performance. Traders viewed the information as discouraging prospects of the Fed loosening policy. Bitcoin sunk by 2.9%, Ether by 3.3%, and Dogecoin by 3.8% on October 5th, shadowed again by a slump in stocks – this time of 1.8%. If you’ve got an interest in CFD Bitcoin trading, or in crypto in general, join us for a survey of the sector and also for a peek into what may be in store for it down the line.
The Extent of the Damage
The demise of the Terra blockchain earlier this year, together with the collapse of the Three Arrows Capital hedge fund and crypto firm Celsius, triggered an ongoing crypto selloff, the effects of which are still being felt. After taking a serious blow, Bitcoin and Ethereum trading prices got back on their feet somewhat, but many younger, smaller crypto projects met their ends. In this bear market, “even good projects with utility will struggle to sustain their operations as they lose access to capital and funding”, explained Jacob Joseph of CryptoCompare. Terra Classic was worth a tiny fraction of a cent by the start of October. To give asense of the scale of the damage: 766 crypto tokens stopped trading completely for at least a month back in 2019, while in 2022 it was 12,100.
Risk Asset?
Between January and September, the Nasdaq Composite index was down 25% and Bitcoin almost doubled those losses with a massive 48%. September itself turned out to be a particularly depressing month for the stocks on the Nasdaq, which lost another 10.5%. Bitcoin’s losses in the same month, however, as we saw above, were not only less than double this, but also much less altogether at 4%. Perhaps the interconnections between equities and cryptos were breaking down? Stephane Ouellette of FRNT, for one, thought so and was “excited to see correlations with risk assets begin to break, meaning the ‘fast-money’ speculative crowd may be losing their influence in the space”.
Peering Ahead
Analysts have different views on what might stimulate Bitcoin trading prices back into rally mode. Some say that when the US dollar loses strength, Bitcoin will awaken. Others, like Ashley Oerth of Invesco, say it depends on the Fed’s hiking schedule, which could change next summer “when we see peak hawkishness from central banks and a start to easing policy.
Anyone involved in CFD crypto trading knows about the media hype surrounding Ethereum’s recent Merge to a proof-of-stake system of validation. This could turn out to make an impact on Bitcoin’s market share, according to some analysts. “If the merge proves to be completely successful, an increased popularity of proof-of-stake chains could rattle Bitcoin’s dominance”, suggests Ray Brown of CoinSpot. He adds that Ethereum’s high level of utility could work in its favour as the weeks and months go by. As it stood at the start of October, though, Bitcoin still dominated 48% of the market. So where will Bitcoin trading prices head next? Only time will tell, but as the next few months seem to be fraught with volatility, now may be a great time to start scanning headlines in order to gain a better sense.
Looking ahead, Matt Maley of Miller Tabak & Co was optimistic that “the overall price has got to do better, and once it does, the retail investor will become excited again”. In the meanwhile, those engaged in CFD crypto trading will be keeping up with Fed policy as well as any data indicating changes in the level of retail crypto interest.